mary jo white, chairman kara m. stein, commissioner 100 f … › comments › s7-06-16 ›...

July 18 2016

Mary Jo White Chairman Kara M Stein Commissioner Michael S Piwowar Commissioner Brent J Fields Secretary

Securities and Exchange Commission 100 F Street NE Washington DC 20549-1090

Via email to rule-commentssecgov

Re File No S7-06-16 - Business and Financial Disclosure Required by Regulation S-K

Dear Chairman Commissioners and Secretary

Sisters of Charity of Saint Elizabeth appreciates and welcomes the opportunity to respond to the SECs Concept Release on Business and Financial Disclosure Required by Regulation SshyK We wish to express our support for the SECs evaluation of disclosure under Regulation S-K and the establishment of enforceable SEC requirements for companies to report on sustainability issues While we note the importance of the entirety of this complex review we will focus our comments on Section F Disclosure ofInformation Relating to Public Policy and Sustainability Matters as well as Number ofEmployees under Section IVA5

The Sisters of Charity of Saint Elizabeth are members of the Interfaith Center on Corporate Responsibility ICCR is a coalition of investors driven by faith and values who view the management of our investments as a catalyst for both change and economic stability with the companies where we are shareowners Our membership comprises nearly 300 organizations including faith-based institutions socially responsible asset management companies and unions and other pension funds that collectively represent over $100 Billion in invested capital Many of ICCRs member organizations are also members of other coalitions including the United Nations-supported Principles for Responsible Investment (PRI) whose collective assets under management total $60 Trillion and CDP which represents in excess of $100 Trillion in assets under management

Iii 9732905402

II 9732905441

PO BOX 476

CONVENT STATION

NEW JERSEY

07961-0476

BAIRESSCNJORG

Page 2 of 21

Sisters of Charity of Saint Elizabeth ardently endorses disclosure of sustainshyability information that is material and comparable and that affects our financial interests as shareholders as well as our communities Numerous investors and organizations like the PRI Ceres CDP and the US Forum for Sustainable and Responsible Investment (US SIF) have made articulate cases for the need for such information to meet our fiduciary obligations as investors We are aware that hundreds of global companies embrace the case for such disclosure as they publish useful annual sustainability reports They understand the business and financial case for addressing these issues The value of such information is affirmed by an expanding number of global investors and companies alike and has been an issue that Sisters of Charity of Saint Elizabeth has raised with companies over decades of engagement However this disclosure is done on a voluntary basis Because the disclosure is voluntary the reporting is inconsistent and therefore insufficient for investor needs

Sisters of Charity of Saint Elizabeth believe in the importance of disclosure of relevant and significant information that may not be deemed material in the short-term but has a clear and direct impact on financial performance and when taken together with other information may have the potential to damage or strengthen a companys reputation impact its social license to operate or affect its sales and business relationships This information would be relevant to an investors assessment of the company and may at a future date be clearly within the definition of material information There are several examples where this has manifested with respect to our engagement with companies including Sisters of Charity of Saint Elizabeths concerns over abusive and risky practices in the financial services industry leading up to the 2008 financial crisis and subsequent economic recession early concerns raised in the 1990s around climate change impacts urging companies to recognize the need to address public health threats from global health risks of antibiotics in meat supply chains which is now an issue that companies must address in their product development1 to the unaffordability of basic life-saving medicines and to address risks around water sustainability which is now seen as a significant risk for corporations In short increased disclosure related to sustainability issues is critical to create transparency for investors regarding a companys interactions with and impact on employees communities and customers Frameworks and processes associated with disclosing ESG information may help a company - and society - to mitigate future risks

Sisters of Charity of Saint Elizabeth uses ESG disclosure to evaluate companies for investment thus informing our investment strategies and stock selection decisions and to inform our proxy voting We also use existing disclosure to help us identify appropriate companies for shareholder engagement with corporate management where we address current practices and policies that expose companies to risks We believe that mandatory disclosure of ESG information under Regulation S-K is necessary for investors to make informed decisions While voluntary measures have served an important role in providing increased ESG information to investors this information is inconsistent across corporate sectors and leaves investors with an unclear basis upon which to build our investment strategies

Page3of21

Mandatory disclosure would provide more consistent reliable comparable and verifiable ESG information that would allow educated investors to make more informed investment decisions across the portfolio and advance effective engagement strategies

Section F Disclosure ofInformation Relating to Public Policy and Sustainability Matters

216 Are there specific sustainability or public policy issues [that] are important to informed voting and investment decisions If so what are they If we were to adopt specific disclosure requirements involving sustainability or public policy issues how could our rules elicit meaningful disclosure on such issues How could we create a disclosure framework that would be flexible enough to address such issues as they evolve over time Alternatively what additional Commission or staff guidance if any would be necessary to elicit meaningful disclosure on such issues

Disclosure of financially material sustainability information is already required under current rules However the resulting disclosures fail to meet investors needs Disclosure of ESG information is useful to investors and necessary for strategic investment planning Disclosure allows investors to identify industry leadership in each sector tells investors how well positioned a company is to respond to changing regulations is essential to the evaluation of investment risks and informs overall investment and engagement strategies The current framework which leaves it up to the corporation to determine when such an item is material however has not produced the comprehensive and comparable information that we are seeking

ESG information is material to understanding a companys financial performance and quality of management and helps to contextualize an investors assessment of the company relative to the whole portfolio ESG issues present portfolio-wide risk issues such as climate change and human rights are relevant beyond a specific company The ability of investors to assess the entire portfolio fits within the US Supreme Court definitions of materiality and a reasonable investor1 as it is critically important for investors to avoid risks resulting from corporate failure to address matters of ESG concern

Sisters of Charity of Saint Elizabeth has requested disclosure of meaningful sustainability information for 41 years We are pleased to see that hundreds of companies are now providing some sustainability reporting Shareholder requests for more responsible policies and practices around a variety of ESG issues have been the subject of 1177 shareholder resolutions by ICCR members between 2011 and 20162 Companies have begun to respond to the request for this information from investors as it has become increasingly clear to shareholders that evaluating corporate risk management around sustainability issues is critical This increase in ESG disclosure follows the recent trend of increasing investor support for ESG disclosure in shareholder resolutions For example a

1 TSC Industries Inc v Northway Inc 426 US 438 (1976) 2 ICCR 2016 Proxy Resolutions and Voting Guide

Page 4 of21

2016 shareholder resolution on sustainability reporting at CLARCOR Inc received a 608 vote3 As a second example a 2016 shareholder resolution on reporting of methane emissions management at WPX Energy Inc received a 508 vote4 While shareholders currently use the resolution process to convince companies to disclose more and better ESG information our time would be better spent meeting with companies on performance improvements and risk mitigation strategies - rather than basic requests for commonplace sustainability reporting that we expect to now see across all sizes of companies

For example with respect to GHG emissions data we have found that several companies in the same industry will use different calculation methods and reporting platforms (ie CDP and individual company reports) which make the information that is available difficult to understand and make it difficult to assess how one company is managing the risk of GHG emissions against another An additional example exists related to management of water risk throughout corporate supply chains While some companies publicly disclose a water management policy that applies to their operations and supply chain others will only have a policy that applies to their operations and others will include only sparse information in a Supplier Code of Conduct that is difficult to locate within their public website Instead of making the case company by company through engagement as well as to better enable Sisters of Charity of Saint Elizabeth to make use of the information it is preferable to require a clear disclosure format consistent expectations and guidance on how companies should implement it

Corporate approaches to ESG issues and risks relate directly to value Corporations that recognize the need to address ESG concerns are better positioned to anticipate changes and adapt most effectivelys A companys ability to define and measure its progress will help investors consistently analyze portfolios creating a more robust investment strategy Instead of this more robust disclosure and associated strategic thinking being relevant to only a small subset of companies that have received pressure from investors or their customers to provide this information Sisters of Charity of Saint Elizabeth recommends that the SEC should require at least some subset of information of all companies to enhance the practices and performance of all issuers in this area Additionally we want to see that the ESG information provided is verified externally which would ensure best practice reporting

Disclosure of ESG information demonstr0tes how well positioned a company is to respond to changing regulation andor its context Sisters of Charity of Saint Elizabeth is also concerned about the external impact of corporate policies which helps us to evaluate systemic risk We look to the impact of corporate activity on society particularly local communities as well as on the environment and the impacts to natural resources

3 Walden Asset Management Waldens ESG Reporting Resolution at CLARCOR Earns Majority Support 4 Ceres WPX Energy Methane Emissions Management 5 ICCR Social Sustainability Resource Guide Building Sustainable Communities through Multi-Party Collaboration

Page 5 of21

Sisters of Charity of Saint Elizabeth has identified a number of very relevant and important topics that should be disclosed in mandatory SEC filings While we appreciate the work being done by some companies to provide verification of some reporting we believe that as ESG evaluation has become common practice by large asset managers mandatory disclosure would strengthen investor knowledge and decision making On a larger scale global stock exchanges have begun to use sustainability as a listing requirement6

The SEC could create meaningful disclosure on ESG information by ensuring that there is mandatory disclosure with consistent accurate and reliable reporting by companies on these important and material items for investors

218 Some registrants already provide information about ESG matters in sustainability or corporate social responsibility reports or on their websites Corporate sustainability reports may also be available in databases aggregating such reports Why do some registrants choose to provide sustainability information outside of their Commission filings Is the information provided on company websites sufficient to address investor needs What are the advantages and disadvantages of registrants providing such disclosure on their websites How important to investors is integrated reporting as opposed to separate financial and sustainability reporting If we permitted registrants to use information on their websites to satisfy any ESG disclosure requirement how would this affect the comparability and consistency of the disclosure

Sisters of Charity of Saint Elizabeth recognizes that hundreds of companies are providing sustainability reporting to differing degrees on their websites A significant reason that companies are now reporting on ESG issues is the history of active engagement by investors

Available information related to ESG performance and disclosure on company websites is insufficient for investor needs While listing this information on company websites can be helpful this type of voluntary disclosure is inconsistent is provided with varying frequency and is often very difficult to find Additionally information companies provide in corporate sustainability websites and online reports is information intended for all stakeholder audiences We appreciate this information but seek mandatory reporting of information that is necessary for investor decisions We agree with CDPs statement to the SEC that if information is deemed necessary or appropriate to protect investors then this material ESG data should be included in a companys annual report and 10-K filings7 This would ensure that investors have access to regularly reported data in a more consistent and easy-to-find way Sustainability reports that are filed on corporate websites are not comparable are inconsistent are not audited and are therefore unreliable As just a few illustrative examples of the challenges some reports are only several pages long while others are over a hundred pages some are formatted as an online web platform while

6 Ceres Stock Exchanges and Sustainability 7 Response from CDP to Concept Release Business and Financial Disclosure Required by Regulation S-K

Page6of21

others are a well-indexed reporti some include information on climate change management and scenario planning while others focus on corporate philanthropy and employee wellness initiatives While all this information is valuable to a certain audience having the most relevant information available to investors in a simple format at the same location would be ideal and most efficient

Investors have had to spend significant amounts of time and money to get the level of disclosure that currently exists Companies are providing some information on websites1

through sustainability reports or other voluntary disclosure but this information is not easily searchable and investors cannot benchmark companies on the basis of varied disclosure The result is that there is hidden risk for investors due to this inadequate and uneven disclosure ESG information is critical for investors to understand what they own and to implement their priorities in their investment decision-making

We urge the SEC to establish mandatory disclosure requirements and that those requirements are made through annual filings in a consistent and comparable manner We believe such disclosures should be a combination of qualitative and quantitative reporting1

so that companies have clearer expectations for metrics regarding certain types of risk1 and so that they have narrative discussion to explain in more detail to investors the risks and opportunities of an ESG factor that may impact the business

219 In an effort to coordinate ESG disclosures several organizations have published or are working on sustainability reporting frameworks Currently some registrants use these frameworks and provide voluntary ESG disclosures If we propose lineshyitem disclosure requirements on sustainability or public policy issues which if any of these frameworks should we consider in developing any additional disclosure requirements

There are currently several voluntary reporting mechanisms that are each gathering some information which is helpful to investors when evaluating ESG risks From the Sustainability Accounting Standards Board (SASB) CDP and the Global Reporting Initiative (GRI) Sisters of Charity of Saint Elizabeth appreciates the extensive work done by these organizations over the years in creating standards for meaningful disclosure of vital ESG information However because each reporting standard is voluntary each has weaknesses Not all companies choose to disclose through these frameworks In addition some companies may respond to only partial sections of a disclosure questionnaire leaving out portions of the answers that may be most material or relevant to investor concerns and therefore the response has limited value While investors appreciate knowing which reporting standards companies are working with as well as the information in them without specific mandatory standards the information is difficult to compare For example while the SASB tool is valuable for sector specific guidance it has a narrower definition of materiality that might not capture issues of systemic risk which Sisters of Charity of Saint Elizabeth considers to be important While the CDP is valuable for specific indictors on climate water and forestry the voluntary corporate reporting results are not consistently comprehensive across issues Sisters of Charity of Saint Elizabeth urges the SEC to build further expertise in the information that is material around a variety of subject areas and

Page 7 of21

middot across industries and to consider each of these reporting standards in order to draw from them and create a consistent mandatory reporting mechanism that provides investors with the critical information they need to evaluate a full spectrum of ESG risks SEC guidance or rules should encourage companies to disclose the reference standards or programs utilized

220 Are there sustainability or public policy issues for which line-item disclosure requirements would be consistent with the Commissions rulemaking authority and our mission to protect investors maintain fair orderly and efficient markets and facilitate capital formation as described in Section 111A1 of this release If so how could we address the evolving nature of such issues and keep our disclosure requirements current

Sisters of Charity of Saint Elizabeth urges the SEC to adopt a policy where line-item disclosure of material information across sectors is required but is also flexible so that requirements can be amended as risks evolve within corporate sectors We also recommend that the Commission develop a process for regularly gathering ESG disclosure views from both companies and investors to identify emerging issues and track the evolution of disclosure needs in this space

Sisters of Charity of Saint Elizabeth works across a variety of ESG issue areas With Sisters of Charity of Saint Elizabeths decades of experience across the ESG spectrum there are a number of key indicators that we would suggest across the following areas

Human Rights

Information about the human rights risks present in a companys operations and supply chain as well as the management of those risks is relevant information for an investor in assessing a companys performance and management approach in both the short- and longshyterm Poor management of human rights risks can lead to significant reputational regulatory and litigation risk for a company and can have a material impact on financial performances The adoption of the UN Guiding Principles on Business and Human Rights (UNGP) in 2011 has made it clear that there is a role for business to play in respecting human rights9 Information about how a company is meeting its expectations under the UNGP would be relevant for investors particularly in industries where there are known risks and violations related to working conditions labor rights race and gender discrimination forced labor and modern day slavery and business impacts on local communities throughout the global supply chain

There are tools that are evolving to assess and benchmark companies on their human rights policies practices and disclosure including the UNGP Reporting Framework10 the

8 See eg The Wall Street Journal Accused of Labor Trafficking OilmiddotRig Repairer Files for Bankruptcy 9 UN Guiding Principles on Business and Human Rights 10 UN Guiding Principles Reporting Framework

Page 8 of21

Corporate Human Rights Benchmark11 and Know the Chain12 However these tools rely on information that is publicly disclosed by companies and because there are not clear standards this information is inconsistently provided or is of varying quality not comparable and does not always include reliable data

Furthermore these tools are unable to assess all companies and are therefore of limited value to investors with a diversified portfolio Therefore it would be beneficial to require mandatory disclosure of severalmiddot key elements related to management of human rights issues The experience from the mandatory disclosure related to conflict minerals demonstrates that requirements for further disclosure encourage companies to better understand their risks and develop the internal infrastructure policies and practices to mitigate those risks

There are several critical pieces of information that would enable investors to better understand and assess the human rights issues and management practices of a company to inform their investment and voting decisions Disclosure of the following would provide consistent information available to all investors

bull Whether an issuer has a Human Rights Policy that applies to direct operations and throughout its supply chain that includes prohibition of child and forced labor and how it is auditing the human rights policy

bull Governance and Board responsibility for human rights issues bull Data from an independent Human Rights Risk Assessment to define the primary

human rights challenges to inform the companys approach to human rights issues in its operations and value chain

bull Existence and effectiveness of Remediation and Grievance mechanisms bull The companys approach to stakeholder engagement bull Reporting on traceability purchasing practices recruitment worker voice and

monitoring13

Climate Change

Climate change poses material financial risk to investors and over the past several years it has been increasingly recognized by the financial community as an area of investor concern This has been demonstrated by the broad investor action in support of the Paris Climate Agreement the 52 shareholder proposals filed by ICCR members in 201614 and the number of investor statements about climate change The Paris Climate Agreement adopted in Paris in December 2015 by 195 countries included a commitment to limit global average temperature increases to 2degC or less above pre-industrial levels Countries have made initial commitments in line with this aspirational goal and will be increasing

11 Business amp Human Rights Resource Centre Corporate Human Rights Benchmark 12 Know the Chainorg 13 Know the Chain JCT Benchmark Themes Key Findings 14 CCR 2016 Proxy Resolutions and Voting Guide

Page 9 of 21

their regulatory efforts to further align with the 2 degree target Companies must be prepared to operate in a carbon constrained economy and additional disclosure about their strategies to do so is necessary

Disclosure of the following would provide consistent information available to all investors related to climate change

bull Climate change policy and Governance of climate change issues bull Greenhouse Gas emission reduction targets for scope 1 2 and 3 emissions and

progress against these targets bull Energy efficiency of operations and products bull For relevant companies in the oil and g_as industry stress testing and scenario

planning for alignment with the 2 degree objective adopted in Paris bull How climate change strategies are connected to a companys public policy agenda

and activities bull Renewable energy procurement targets

Water

Water has been declared a human right by the United Nations The Earth is challenged by the supply and demand imbalance the lack of good substitutes and political controversies surrounding the issue Corporations have a critically important role to play in addressing the freshwater crisis as their agricultural and industrial consumption increases and water stress becomes a more prominent issue due to climate change and competing interests Presently agricultural and industrial water use account for 70 and 22 percent of total water use respectively Apart from the stresses on water supply generated by industrial use declining water quality due to agricultural runoff industrial wastewater improper disposal of human waste and many other issues are contributing to the acute water crises around the world that the World Economic Forum has identified as a top global risk in its most recent 2016 Risk Report Affected communities civil society investors consumers and the general public are increasingly engaged in issues of water sustainability

Beyond the obvious social impact to affected communities water issues pose a range of risks to business - from higher costs to major business disruptions stemming from supply chain interruptions and a possible loss of license to operate It is imperative that companies publicly disclose ways in which they seek to identify and assess water use in core businesses and key suppliers and how they incorporate these findings into business decisions and a water stewardship policy This process helps businesses and institutional investors to better understand the risks and opportunities associated with water scarcity and other water-related issues Disclosure facilitates a coqipanys journey towards water stewardship and water mapping delivering insight that enables companies to take intelligent action to manage this critical resource Further disclosure communicates and builds trust with shareholders clients communities and the public audience

0 of 21

Disclosure of the following would provide consistent information available to all investors related to water management

bull Identification and assessment of water use in core businesses and key suppliers bull Assessment of water availability issues challenges and levels of sustainable use

around business operations bull Performance measured against baselines and goals bull Data on water for operations and supply chain especially in water stressed or

scarce areas (including seasonal or periodic water stress or scarcity) Report in the context of local climate ecology human population economy (agriculture industry service) and define the term local11 and the watershed11 area(s) covered

Food

Given the fragility of the current food system and the need to feed an ever-growing global population it is incumbent on all companies in the food supply chain (producers processors and distributors) to ensure that their policies and practices do not further contribute to the growing crisis but instead advance innovative solutions that will help create a more sustainable and resilient food system The industrialization of agriculture intended to help feed the Earths growing population has had unintended environmental and social consequences Food operations powered by fossil fuels to prbduce and ship foods around the world the overuse of artificial fertilizers and pesticides and the enormous quantities of animal waste and other externalities11 are fouling the soil air and water - to the detriment of both communities and other businesses relying on uncontaminated resources for their operations

Companies then need to be publicly transparent on the food security implications of land and water use along the value chain Further consumers and public health and government officials are increasingly alarmed about the public health risks associated with obesity which is particularly acute in emerging markets and increasingly among young people As

middot consumer demand builds for healthier alternatives and growth in these segments continues to outpace the category long-term investors will be attracted to those companies best able to capitalize on these emerging market trends

Disclosure of the following would provide consistent information available to all investors related to food

bull For relevant sectors sustainable agriculture policies applicable across the value chain that demonstrate how the company business model is consistent with longshyterm environmental and social sustainability

bull Acknowledge that agricultural land needs to be managed sustainably bull Up-to-date and complete information on their policies practices and performance

on an ongoing basis integrating a clear narrative about how addressing nutrition issues is benefitting their business

Page 11 of21

Political Spending and Lobbying

Anothecvitally important issue upon which we urge disclosure is on a companys political spending and lobbying activities While laws require full disclosure of PAC contributions gathered by companies from employees there is no requirement to make parallel disclosure of expenditures using company funds Disclosure of lobbying and political spending would allow shareholders to evaluate whether these expenditures are consistent with a companys expressed goals and are in the best interests of the company and shareholders

As the SEC is well aware over 12 million petitions and letters have been submitted to the agency urging mandatory disclosure by companies of their political spending This is an issue of huge public importance and we wish to add our support for such specific disclosure Understanding the importance of such disclosure approximately 160 companies have volunteered to publish such information given the clear relevance to investors and the public alike15 Specific details regarding questions to be addressed are outlined in the standard shareholder proposal seeking disclosure on direct or indirect expenditures to affect election of candidates

In addition we would encouragemiddot clear guidelines for disclosure of information on corporate lobbying directly and through third parties Again the specific questions that a company should address are stipulated in the standard lobbing disclosure resolution including a summary of primary lobbying priorities summary of expenditures federally and in states where the companies lobby whether the company engages on grassroots lobbying Trade Associations a company is a member of payments made to the Association and the percent spent on lobbying and whether the company is a member of any organization which compiles model legislation for lobbying

We believe a companys political spending and lobbying activities can certainly affect the companys brand or reputation Examples include the controversy about specific companies lobbying against action on climate change for higher drug prices or against public health measures like anti-smoking laws

Disclosure of the following would provide consistent information available to all investors related to political spending and lobbying

bull Policies and procedures for making with corporate funds or assets contributions and expenditures (direct or indirect) to (a) participate or intervene in any political campaign on behalf of (or in opposition to) any candidate for public office or (b) influence the general public or any segment thereof with respect to an election or referendum and which includes a description of the decision making process and oversight by management and the Board for making payments

1s PoliticaAccountabilitynet

Page 12 of21

bull Disclosure of monetary and non-monetary contributions and expenditures (direct and indirect) including the amount of payment and recipient

bull Policies and procedures governing lobbying both direct and indirect and grassroots lobbying communications

bull Disclosure of payments used for (a) direct or indirect lobbying or (b) grassroots lobbying communications in each case including the amount of the payment and the recipient

bull Any membership in and payments to any tax-exempt organization that writes and endorses model legislation

bull Include a description of the decision making process and oversight by management and the Board for payments for lobbying communications and to tax-exempt organizations

Board Diversity Non-Discrimination and Pay Equity

Sisters of Charity of Saint Elizabeth supports the strengthening of the existing proxy rules to require companies to disclose the gender and racial composition of their nominees for directors and their plans to achieve greater gender and racial diversity among their leadership groups We believe this proposal is entirely consistent with the interests of investors

As Chair White stated clearly in an address at ICGN in June 2016 broadening diversity on company boards is an important priority At present under 20 of board seats in SampP 500 companies are held by women Investors and womens organizations have joined together under the umbrella of the Thirty Percent coalition and have pressed companies with no or inadequate diversity to add women and people of color to their boards They have done this through letters discussions with management and boards and the filing of shareholder resolutions

Workplace discrimination and miequal pay is not just a social issue but a critical business issue that can affect the performance of the businesses in which we invest Unfair social practices within companies can lead to negative outcomes including damaged reputations limited internal competition poor morale higher turnover not to mention the risk of legal violations and lawsuits16 As a result investors are becoming increasingly interested in these issues

An earlier requirement in 2009 from the SEC for companies to report on board diversity did not define the term and as a result companies created their own definitions Many companies chose to define diversity on their boards as consisting of members with different professional experience or even those hailing from different geographic regions Though this is no doubt a form of diversity very little progress has been made on increasing the racial ethnic and gender representation of boards or senior managements within firms which are the areas of diversity that are most lacking

16 Vivek Wadhwa Bloomberg News The True Cost of Discrimination

Page 13 of21

As a network of investors with investments spanning a multitude of countries cultures and languages we are ourselves committed to fostering a diverse and inclusive work environment We believe diversity enriches our efforts and aligns with our desire to consider the full range of social justice environmental and corporate governance factors that influence the long-term performance of our investments

With regard to greater information on pay gaps by gender and race the SEC has already mandated disclosure of the pay gap between public company executives and their workforce as part of the implementation of the Dodd-Frank Act Collecting and disclosing pay data across gender race and ethnicity would significantly increase investor confidence in the commitment of firms to address the issue The requirement that companies disclose this data is a critical first step in addressing the significant pay gap by gender and race Investors and the companies themselves must first understand the extent of this problem before attempting to formulate solutions

Having a diverse set of skills experience and backgrounds on boards is in our view an essential component of good corporate governance and long-term business success Similarly the disclosure of the pay gap analysis by gender race and ethnicity will allow investors to understand the extent of the problem across industries and sectors Data collected across sectors will also allow companies that are outperforming on these metrics to self-identify and to be rewarded by the marketplace

We believe the proposed SEC rule should include information about the companys policy on board diversity as well as steps taken to implement a diverse board in terms of gender and race In addition we believe there should be disclosure on how the company instructs its search firm or search committee to provide a diverse candidate pool and successes or challenges the company has faced in the last year in meeting those goals Investors have asked companies to ensure the Charter of their Nominating Committee includes an affirmation of a diverse board

Disclosure of the following1 7 would provide consistent information available to all investors related to diversity and pay equity

bull The inclusion of women and minority candidates in every pool from which board nominees are chosen

bull Plans to advance board diversity bull An assessment of challenges experienced and progress achieved bull Disclosure of pay ratios by gender race and ethnicity on an annual basis

Indigenous Rights and Community Relations

17 The first two disclosure indicators listed are reflected in 2016 shareholder resolutions filed with Cabot Oil amp Gas Corporation Cognizant Technology Solutions Corp Discovery Communications Inc and Stifel Financial See ICCR 2016 Proxy Resolutions and Voting Guide

Page 14of21

Sisters of Charity of Saint Elizabeth who invest in extractives industries urge these companies to address the concerns of local communities and indigenous populations The need to respect the rights of indigenous peoples and local communities relevant to natural resource extraction comes from more than a community need there are clear financial risks When communities do not give companies a social license to operate it has significant financial implications as has been seen with the Newmont Mining Minas Conga location in Peru As stated by Professor John Ruggie for a world-class mining operation theres a cost somewhere between $20 million to $30 million a week for operational disruptions by communities and the time it takes to bring oil and gas projects online has doubled over the course of the previous decade creating substantial cost inflation18

A 2011 study by Environmental Resources Management of delays associated with a sample of 190 of the worlds largest oil and gas projects (as ranked by Goldman Sachs) found that 73 of project delays were due to above-ground or non-technical risk including stakeholder resistance19 In 2014 Ernst and Young elevated the social license to operate to the third place on its list of the greatest business risks to the mining industry citing that the frequency and number of projects being delayed or stopped due to community and environmental activists continues to rise20

In 2013 a dispute between Southwestern Energy and the Elsipogtog First Nation in Canada resulted in a blockade that halted exploration activities for several weeks and ended in violent confrontation with police that made international headlines An injunction filed by Southwestern Energy to dismantle the blockade cited losses of $60000 a day 21 However this number is likely an underestimation of the actual cost to investors because it only factored in the costs of rental equipment that was unusable during the blockade It did not factor legal fees lost productivity staff and executive leadership time or the public relations expenditure needed in response to the surge in bad press It also did not account for the fact that hydraulic fracturing was later banned in New Brunswick rendering its $37 million investment in the province stranded until further notice

Disclosure of the following would provide consistent information available to all investors related to indigenous peoples and community relations

bull Policies and practices for obtaining community support and where required by the UN Declaration on the Rights of Indigenous Peoples Free Prior and Informed Consent from Indigenous Peoples

1s Business-Ethicscom Business and Human Rights Interview with John Ruggie 19 BSR Commercial Value From Sustainable Local Benefits in the Extractive Industries Local Content 20 EY Business risks facing mining and metals 2015 21 Al Jazeera America Shale gas company loses bid to halt Canada protests

Page 15 of21

bull Project-level assessments of negative social and environmental impacts to communities with specific attention given to Indigenous Peoples women and other vulnerable groups

bull Steps being taken in relevant industries (such as trucking and extractives) to monitor and reduce human trafficking and violence against women that may be directly or indirectly caused by their operations

Taxes

Aggressive corporate tax planning can create earnings risk damage corporate reputation and brand value and cause significant harm to local and national economies As practiced by large multinational companies we believe that aggressive tax strategies have become a key systemic risk that can impact the profitability of a company and have broader impacts on portfolio returns Current rules do not provide investors the information we need to evaluate and address these substantial risks

In 2013 PRI convened a group of global investors to explore the issue of corporate tax planning and produce a guide on how to engage with companies on this topic We would commend this report to your attention to gain a better understanding of the range of concerns raised by investors22 We would also commend to the Commissions attention the comment letter submitted by the FACT Coalition a coalition of tax-justice organizations23 The recommendations below are drawn from this letter and the PRIs comment letter

Enhanced disclosure on corporate tax practices should allow investors to understand how corporate boards identify tax related risks and respond to government and other stakeholders expectations It should also allow investors to identify a potential aggressive approach to tax planning At a minimum this requires companies to disclose meaningful information on the following areas

bull Corporate tax policy and principles governance and oversight frameworks and management systems for tax-related risks

bull What drives the gap between effective tax rate shown on income statement and the weighted average statutory rate based on the firms geographic sales mix

bull Explanation of the difference between the foreign effective tax rate and the average statutory rate of the countries where companies do business particularly the key tax strategies employed and the risks of those strategies including regulatory risks currently this figure is not explained within the tax footnote Currently companies are not required to disclose their foreign effective tax rate This would also be an important indicator to signal to investors whether a company is engaged in aggressive tax avoidance in other countries

bull An overview of what is driving unrecognized tax benefit (UTB) changes UTBs display the tax positions being taken by companies that management believes are less than 50 likely to be upheld by a tax authority

22 The report is available at httpswwwunpriorgdownload report8531 23 The Fact Coalition FACT Comments to SEC on Concept Release Urge Public Country-by-Country Reporting

Page 16 of21

bull Disclosure on intracompany debt including the countries where the debt is held the amount of intracompany debt and the average interest rate paid by other subsidiaries on that debt This would allow investors to evaluate whether multinationals are shifting profits between subsidiaries in order to avoid tax or for appropriate business purposes

bull The most financially material tax incentives across jurisdictions information on expiries of all incentives investment requirements and commentary regarding the likelihood that such incentives will not be renewed should be provided

It is impossible for an investor to understand a companys tax strategy without understanding its global structure including the business nature of existing subsidiaries as well as the overall approach to the use of secrecy jurisdictions or tax havens Currently however a number of large companies are failing to disclose their subsidiaries presumably because they do not deem them to be significant under the SECs current rules We would recommend that the SEC eliminate the significance test for subsidiaries and simply require companies to disclose all subsidiaries The information would provide more insight on corporate tax practices and would be valuable for investors We also recommend that the SECs disclosure requirements be aligned with evolving international standards on country by country reporting (eg the OECD- Base Erosion and Profit Shifting project and relevant template for Country by Country reports)

We also support the FACT Coalitions call for the following company disclosure on an annual country-by-country basis

bull Profit or loss before taxes bull income tax accrued for the current year bull revenues from unrelated parties related parties and in total bull income tax paid (on a cash basis) bull effective tax rate bull stated capital bull accumulated earnings bull number of employees and bull tangible assets other than cash or cash equivalents24

Conflict Minerals

While disclosure on conflict minerals is required under the Dodd-Frank Act additional requirements from the SEC are necessary for investors to accurately review extractives companies in their portfolios Over 1200 companies have now reported to the SEC regarding their sourcing of conflict miherals - tin tantalum tungsten and gold - for three years in a row Companies have reported on the advantages they have seen to increasing

24 The Fact Coalition FACT Comments to SEC on Concept Release Urge Public Country-by-Country Reporting

Page 17 of21

transparency in their supply chains1 having a clearer understanding on the origin of their raw materials and looking at their human rights risks

The consistent disclosures that companies have submitted to the SEC over the last three years have allowed investors to start tracking companies progress in improving their activities to address the risk that minerals used in manufacturing may support conflict in the DRC Reports such as Responsible Sourcing Networks reports (2014 2015) Mining the Disclosures An Investor Guide to Conflict Minerals Reporting25 have offered investors an analysis of individual companies and industrial sectors performance have ranked companies and have pointed out best practices

Several lessons have been learned from the implementation and evaluation of reporting under 1502 Having the OECD Due Diligence Guidance as the de facto framework has been hugely useful Frameworks are constantly being revised and updated The OECD guidance itself does not limit reporting to a specific geographic region mineral or issue and increasingly conversations among leading conflict minerals stakeholders have turned to other DRC-related human rights risks as well as other minerals that are involved in such risk The mandatory aspect of this reporting has led to new companies and new industries putting standardized programs and procedures in place1 which has a greater impact on suppliers

However a company does not have to establish that it conducted a good faith Reasonable Country of Origin Inquiry (RCOI) it only needs to assert it There needs to be more accountability about how companies decide whether they should be reporting Allowing companies who may conduct a less thorough RCOI to skip out on more comprehensive reporting incentivizes risky behavior and as a result punishes companies who are more transparent

Disclosure of the following would provide consistent information available to all investors related to mineralsraw materials sourcing

bull A strong policy and an effective system to implement it bull An assessment of identified risks in the chain of custody of mineralsraw materials bull A due diligence report on steps taken to manage risk bull A report on progress toward meeting established goals to source conflict-free

(ethical and sustainable) mineralsraw materials

223 In 2010 the Commission published an interpretive release to assist registrants in applying existing disclosure requirements to climate change matters As part of the Disclosure Effectiveness Initiative we received a number of comment letters suggesting that current climate change-related disclosures are insufficient Are existing disclosure requirements adequate to elicit the information that would permit investors to evaluate material climate change risk Why or why not If not

25 Responsible Sourcing Network Mining the Disclosures

Page18of21

what additional disclosure requirements or guidance would be appropriate to elicit that information

Existing disclosure requirements are somewhat helpful to investors in assisting them to evaluate material climate change risks However to realize their full potential they must be fully enforced by SEC staff with expertise in the materiality of climate impacts Unfortunately current rules have not produced sufficient information for investors to evaluate climate risks While Sisters of Charity of Saint Elizabeth appreciates the SECs 2010 interpretive guidance on climate change-related disclosure its potential to elicit information essential for investors has been largely unrealized We are concerned that even in the midst of increasing regulatory and policy action on climate change staff have issued very few comment letters regarding the inadequacy of current disclosures and have not pursued enforcement actions for failure to meet disclosure requirements despite a very active financial risk and disclosure enforcement agenda Such actions would ensure that companies were updating their disclosures to reflect the evolving material risks associated with climate change

In some cases line item disclosure rules that apply to industry sectors may be useful here Many investors are long-term shareowners and hold companies representing the breadth of the economy Interested in reducing climate risks in their portfolios they seek disclosure that enables them to evaluate climate-related risk in 11xposed industry sectors Also with such broad holdings these investors are interested inreducing GHG emissions throughout the economy to reduce systemic risks from climate impacts that are accruing to the portfolio For example rules regarding the disclosure of GHG reduction targets progress against these targets the energy efficiency of operations and products and climate-related initiatives would be useful

Other disclosures that provide investors with more critical tools of the management of such issues include

bull Climate competency of directors - both existing and those running for election bull Executive compensation that may be tied to reducing climate risks or developing

opportunities bull Disclosure of Scope 1 2 and 3 greenhouse gas emissions and where relevant newly

coined Scope 4 emissions (avoided emissions) bull Year over year performance of greenhouse gas emissions their reductions and

energy efficiency rates

In some cases industry specific rules may be appropriate For instance many investors are concerned that the business plans of oil and gas electric power and coal companies pose financial risks in the short- and long-term because they do not sufficiently factor in the ongoing transition to a low carbon global economy In this case rules regarding disclosure of 2-degree scenario planning results and methodologies may be needed

Section IVA5 Number ofEmployees

Page 19 of21

56 Should we require registrants to distinguish among their total number of persons employed such as by distinguishing between

bull full-time and part-time or seasonal employees bull employees and independent contractors or bull domestic and foreign employees Why or why not

It is important to require registrants to distinguish between the types of workers employed Prevalence of migrant workers (domestic or foreign) might indicate a higher risk for violations of human and labor rights - namely forced or bonded labor exploitation overtime violations discrimination deductions from wages related to the migrant status or other scenarios that lead to exploitation of a workers vulnerable status In addition where a company employs a higher number of migrant workers particularly foreign migrant workers we see a higher rate of workplace accidents due to improper or insufficient training related to language barriers as well as other related health and safety issues

Additionally investors may flag when rates of temporary or contract workers rise substantially indicating high turnover possible lack of training and experience and lost institutional knowledge in the enterprise

57 Rather than requiring registrants to disclose the number of employees or independent contractors should we require or permit registrants to provide a range Why Should we allow for different ranges based on the size of the registrant Would reporting a range rather than a specific number reduce the costs of producing this disclosure

Companies should be required to report the exact number of employees in the different categories and by region or core business segment Enabling companies to report ranges would deprive investors of accurate information about material risk that companies may face with potential labor and human rights violations Ranges would also make company to company comparisons less accurate and valuable However a range for a number of contractors or subcontractors may be acceptable only if the exact number is not known by the registrant The acceptable estimate should be a narrow range accompanied by a disclosure why the exact number is not available

58 Should we require disclosure of additional information about a registrants employees or employment practices What would be the challenges of requiring disclosure of any additional information and what would be the benefits to investors

Companies should be required to disclose additional information about their employment practices to ensure that investors have accurate information about a companys material risk As one example for investors concerned about a companys risk with human trafficking such additional information should include what is the protocol for hiring

Page 20 of21

workers Is the company using agents recruiters labor brokers or other third party contractors to recruit workers If a third party is used for hiring is a third party licensed in the location it operates Does the company ban fees charged for employment Does the company provide written contracts in the employees language Does the company prohibit retention of any work documents including passports What is included in the benefit package for the migrant workers Is there adequate health coverage What are the grievance mechanisms for such workers

Companies should also be required to disclose information about pay equity by gender race and ethnicity as described above

59 As outsourcing and subcontracting have become more prevalent in the last few decades what if any additional information about a registrants outsourcing or subcontracting arrangements should we require Would this information be most useful in the context of the description of the registrants business disclosure about trends and developments affecting results of operations or in a discussion of risk and risk management What would be the challenges of requiring disclosure of this information

Disclosure for investors about a companys outsourcing and subcontracting is vital in understanding a companys risks related to supply chain operations Supply chain risks related to labor and human rights violations as well as environmental impacts are increasingly recognized by investors as material to the long-term health and sustainability of a company Investors believe that the most profitable companies over the long-term will be those which are creating transparent ethical and accountable corporate cultures reflected by improved disclosure and reporting especially on the issue of worker rights in their supply chains

CONCLUSION

To summarize our answers to Section F of the Comment Release it is our view that

1 Disclosure of material ESG information should be required as it is useful to investors

2 Material ESG data should be included in corporate Annual Reports and 10-K filings to address the insufficiency and inconsistency of voluntary reporting

3 Line-item disclosure of material information across sectors should be required but should be flexible so that it can be amended as risks evolve within corporate sectors

4 Voluntary reporting frameworks provide information on many companies but without providing consistency across companies and sectors and without providing the checks on accuracy and completeness that are inherent in securities filings

To summarize our answers to Section IVA5 of the Comment Release it is our view that

Page 21 of21

1 Disclosure of material information pertaining to worker recruitment practices and the types of workers employed directly or by the suppliers (migrant contract temporary) should be required as it is useful to investors

2 Reporting the exact number of employees is essential to the understanding of material risk that companies may face with potential labor and human rights violations A narrow range for a number of contractors or subcontractors may be acceptable in lieu of the exact number only when accompanied by a full disclosure of why the exact number is not available

3 Companies should be required to disclose additional information related to hiring practices benefits and grievance mechanisms to ensure that investors have accurate information about companys material risk

4 Disclosure for investors about a companys outsourcing and subcontracting is vital in understanding a companys risks related to supply chain operations

We wish to thank the SEC for this opportunity to comment on the important topic of sustainability disclosure We urge the SEC to act and develop mandatory reporting on ESG issues as described above We would welcome the opportunity to discuss this matter with you further at your earliest convenience

Sincerely

Sister Barbara Aires Coordinator of Corporate Responsibility Sisters of Charity of Saint Elizabeth

of 21

Sisters of Charity of Saint Elizabeth ardently endorses disclosure of sustainshyability information that is material and comparable and that affects our financial interests as shareholders as well as our communities Numerous investors and organizations like the PRI Ceres CDP and the US Forum for Sustainable and Responsible Investment (US SIF) have made articulate cases for the need for such information to meet our fiduciary obligations as investors We are aware that hundreds of global companies embrace the case for such disclosure as they publish useful annual sustainability reports They understand the business and financial case for addressing these issues The value of such information is affirmed by an expanding number of global investors and companies alike and has been an issue that Sisters of Charity of Saint Elizabeth has raised with companies over decades of engagement However this disclosure is done on a voluntary basis Because the disclosure is voluntary the reporting is inconsistent and therefore insufficient for investor needs

Sisters of Charity of Saint Elizabeth believe in the importance of disclosure of relevant and significant information that may not be deemed material in the short-term but has a clear and direct impact on financial performance and when taken together with other information may have the potential to damage or strengthen a companys reputation impact its social license to operate or affect its sales and business relationships This information would be relevant to an investors assessment of the company and may at a future date be clearly within the definition of material information There are several examples where this has manifested with respect to our engagement with companies including Sisters of Charity of Saint Elizabeths concerns over abusive and risky practices in the financial services industry leading up to the 2008 financial crisis and subsequent economic recession early concerns raised in the 1990s around climate change impacts urging companies to recognize the need to address public health threats from global health risks of antibiotics in meat supply chains which is now an issue that companies must address in their product development1 to the unaffordability of basic life-saving medicines and to address risks around water sustainability which is now seen as a significant risk for corporations In short increased disclosure related to sustainability issues is critical to create transparency for investors regarding a companys interactions with and impact on employees communities and customers Frameworks and processes associated with disclosing ESG information may help a company - and society - to mitigate future risks

Sisters of Charity of Saint Elizabeth uses ESG disclosure to evaluate companies for investment thus informing our investment strategies and stock selection decisions and to inform our proxy voting We also use existing disclosure to help us identify appropriate companies for shareholder engagement with corporate management where we address current practices and policies that expose companies to risks We believe that mandatory disclosure of ESG information under Regulation S-K is necessary for investors to make informed decisions While voluntary measures have served an important role in providing increased ESG information to investors this information is inconsistent across corporate sectors and leaves investors with an unclear basis upon which to build our investment strategies

Page3of21








Page 4 of21






Page 5 of21







Page6of21








Page 7 of21





Human Rights




Page 8 of21








monitoring13

Climate Change



Page 9 of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21








Page 4 of21






Page 5 of21







Page6of21








Page 7 of21





Human Rights




Page 8 of21








monitoring13

Climate Change



Page 9 of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21






Page 5 of21







Page6of21








Page 7 of21





Human Rights




Page 8 of21








monitoring13

Climate Change



Page 9 of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21







Page6of21








Page 7 of21





Human Rights




Page 8 of21








monitoring13

Climate Change



Page 9 of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21








Page 7 of21





Human Rights




Page 8 of21








monitoring13

Climate Change



Page 9 of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21





Human Rights




Page 8 of21








monitoring13

Climate Change



Page 9 of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21








monitoring13

Climate Change



Page 9 of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of 21







Water



Page 10 of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of 21





Food








Page 11 of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21









Page 12 of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21












Page 13 of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21










Page 14of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21







Page 15 of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21



Taxes









Page 16 of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21






Conflict Minerals



Page 17 of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21










Page18of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21











Page 19 of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21









Page 20 of21





CONCLUSION







Page 21 of21






Sincerely


of21





CONCLUSION







Page 21 of21






Sincerely


of21






Sincerely


mary jo white, chairman kara m. stein, commissioner 100 f … › comments › s7-06-16 ›...

Documents